Commercial land prices soar as uses shift

It’s not just the scarcity of supply and high demand for commercially zoned land that’s driving land prices up, but also the competition that’s emerged from the increasing number of investors who are finding other uses for the properties.

Prices for these commercial parcels are back to peak and almost beyond, having steadily increased during the first two quarters of 2014, said Devon White, vice president for CBRE’s brokerage industrial services in South Florida. He pointed to a 2.798-acre property in Doral that recently sold for $27 per square foot. The site at 8100 NW 25th St. was a paved lot used for trailer storage. Now, Mr. White said, the new owner plans to build a hotel there.

“The primary reason we’ve seen an increase in value is because of zoning for higher use,” he said.

Prices for commercially zoned land have definitely increased in the past six months, as has desire for various uses, said Patricia Birch, vice president for Gallaher & Birch Inc., a commercial brokerage.

“What drives demand is what a developer can do with the land and what the market can bear,” she said. “The demand for quality is high; properties in trophy locations always command the highest prices.”

Ms. Birch pointed to a 1.25-acre property at the mouth of the Miami River that sold last month for $125 million ($2,295 per square foot). “That’s an extraordinary price, and I’ve heard from brokers that there were 15 bids made on the property, which is a large pool of potential buyers,” she said.

Values and prices depend on the balance between supply and demand as well as substitutions, should a different spot be suitable for a developer’s needs, Ms. Birch said.

“Vacant sites are so few and far between that we are having infill development,” she said, referring to developers looking at older buildings in highly developed areas that they can tear down and rebuild or renovate for a different use.

Ms. Birch referenced as an example 835 Alton Road in Miami Beach, a multi-family property that sold a few years ago. The developer just announced that its new use will be restaurant and retail, something that will command higher rents, Ms. Birch said.

She said foreign investors are interested in commercial land, as are owner-users such as health care facilities, restaurants and auto-care companies that want to expand.

As to whether the trend of increasing prices will continue, Ms. Birch pointed to the Knight Frank Wealth Report for 2014 that ranks Miami in seventh place (up from eighth last year) of the 10 most important global cities to the world’s wealthy. In particular, she said, the report predicts Miami will remain in the top 10 over the next decade.

If one looks at the tremendous investment Swire Properties is making in Brickell City Centre, Ms. Birch said, it’s clear they wouldn’t be doing it unless there was firm belief that the wealthy are here in Miami and will continue to come to this city.

“Land prices are continually going up,” said Jim Fried, managing director of the Aztec Group. “There’s no top in sight right now so we cannot see the ceiling.”

It’s anyone’s guess what the tipping point on land prices is and how long the type of demand we are seeing will go on, said attorney Jim Shindell, a partner with Bilzin Sumberg and chair of its real estate group.

“We still have issues with jobs, education and public transportation that Miami will have to deal with, but the city is continuing to grow and its future is bright,” he said. “There will be swings up and down, but the city is getting better all the time.”